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Black McDonald’s franchisees say their profitability gap is worse than it appears

Current operators, whose discrimination lawsuit was previously dismissed, have amended their complaint, arguing that the company concealed Black franchisees’ debt challenges.
McDonald's discrimination lawsuit
Photo courtesy of McDonald's

A pair of current McDonald’s franchisees are accusing the company of a “predatory” growth strategy by steering Black operators into low-income, high-cost neighborhoods and concealing how much debt is required to run them.

James and Darrell Byrd, two brothers who operate a combined six stores in Tennessee, say the company deliberately concealed a wide gap in profitability between Black and White franchisees. The lawsuit says that Black operators’ annual net income is $400,000 less than White operators.

The allegations are included in an amended lawsuit that aims to correct issues with their initial complaint—which was dismissed last month. The Byrds originally filed their lawsuit last year and the judge in his dismissal gave them the opportunity to come back with more details to back their allegations.

“Black franchisees were kept in the dark by design,” James Ferraro and Daryl Parks, attorneys for the Byrds, said in a statement.

Loretta Lynch, an attorney defending McDonald’s in its discrimination cases, called the allegations “unfounded” and “baseless.”

“Like their two previous attempts, plaintiffs’ second amended complaint is based on unfounded allegations and fails to state a visible claim,” said Lynch, a former U.S. attorney general. “Should this case proceed, we are confident the facts that McDonald’s dis not discriminate against the plaintiffs or any other Black franchisees. McDonald’s will continue to defend against baseless claims like these that have no basis in fact.”

The Byrds argue that McDonald’s uses “cash flow” to measure the performance of its franchisees’ stores. But, they say, this conceals the debt required to operate these locations. The Byrds say that McDonald’s steers Black franchisees into restaurants in lower-income Black neighborhoods that struggle with higher security and insurance costs and high employee turnover. They also argue that McDonald’s denies them access to more profitable locations.

They argue that McDonald’s withholds information on the debt required to operate these locations from Black franchisees—and from the National Black McDonald’s Operators Association, or NBMOA, which operators created in 1972 to push for equality.

Ferraro and Parks said that the Byrds didn’t know about the disparities until January 2020, when Black executives Victoria Guster-Hines and Domineca Neal sued the company for discrimination.

“The amended complaint shows how McDonald’s used the National Black McDonald’s Operators Association not to help Black franchisees achieve parity with Whites, but as a front to fraudulently conceal continued discrimination against them,” Ferraro and Parks said. They accuse McDonald’s of a “smokescreen” that concealed a gap in net income of more than $400,000 per year between Black and White franchisees.

“Black franchisees were kept in the dark by design,” they said.

McDonald’s is fending off a number of lawsuits claiming discrimination, including one filed by current executives and others filed by current and former franchisees. It is also fending off a lawsuit filed by the owner of The Weather Channel arguing that the company discriminates against Black-owned media companies in its ad spending.

McDonald’s has made a number of efforts designed to improve its record on hiring and promoting people of color within its system. The company plans to measure executive bonuses based in part on diversity goals and the company recently announced a commitment to increase spending with diverse-owned suppliers by 10% by 2025.

UPDATE: This story has been updated to include a comment from McDonald's. 

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